Market analysis

I've written about prediction markets before, and with the start of the primary season officially upon us, and the race on the Democratic side expected to be tight, I couldn't resist revisiting Intrade to see what the speculators think will happen in the Iowa primaries.

As I write this, the market is trading Obama shares at 66.1, meaning the feeling is there is just about a 2/3 chance Obama wins tonight. Clinton shares are at 19.3, Edwards at 15.0. Also interesting is the change just today - Obama closed last night at 56, so he's up 10.1 points. Most of that has come at the expense of Clinton, who is down 9.2 from yesterday's close, while Edwards is down 2.1

I suspect the fairly steep change is in reaction to a Reuters/C-Span/Zogby poll which shows Obama moving out to a four-point lead over Edwards, with Clinton another three points back. Looking at the history, Obama shares were down to about 30 as recently as Dec. 31, meaning traders are extremely bullish about his chances.

Obama's had some good news this week, particularly in light of the Reuters poll and Des Moines Register poll yesterday which also showed him taking the lead. Still, that's a huge surge in Obama confidence, and seems much more "reactive" than I would have expected from a predictions market.

It's also worth noting that investors have far less confidence in Edwards than his polling results would seem to merit. He might be a good investment, if anyone is so inclined.

On the Republican side, investors are heavily backing Huckabee, who is trading at 70.1, up 11.1 today and also the beneficiary of a large surge in confidence over the past five days or so. Romney shares are at 29.7 (down 8.3 today) and no one else is given a chance - McCain is third favorite at 0.9, and looks like good value at that price, to be honest.

Looking ahead at upcoming primaries, I see shares of Fred Thompson winning in Nevada are currently trading at 8.9. I suggest you sell, quickly.